According to Nareit, an organization that represents the REIT industry, REITs posted their best monthly returns since January 2019 and outperformed the broader markets. The FTSE Nareit All Equity REITs index jumped 10.1% while the FTSE Nareit Equity REITs index rose 10.7%. Those figures compare favorably to the 7.0% gain of the Dow Jones U.S. Total Stock Market and the 6.7% gain for the Russell 1000. The strong returns came as a result of investor optimism stemming from the widely expected belief that the Federal Reserve will pivot from its rate hiking cycle as inflation slows. In addition, REIT operational performance continues to be strong. For instance, REITs reported a new all-time high of $19.9 billion in funds from operations in the third quarter of 2022 according to Nareit’s T-Tracker. During January, all property sectors had a positive performance. The top sectors include lodging/resorts with a 17.1% gain, industrials which rose 13.7%, and data centers at 13.2%. Even the laggard sectors were positive, with retail rising 7.4% and infrastructure gaining 6.8%. Global real estate markets also performed strongly with the FTSE EPRA Nareit Developed index gaining 9.0% compared to a 7.3% gain for the FTSE Global All Cap. In terms of regions, Developed Europe led with a return of 10.8%, followed by North America at 10.7%, and Developed Asia at 3.7%.
Finsum:REITs posted the strongest monthly performance since January 2019 as investors remain optimistic that the Fed will slow its rate hiking policy and REIT operational performance remains robust.
Buying and selling real estate properties can be quite lucrative for investors, but incurring capital gains taxes can weaken profits. What if there were ways to limit capital gains taxes on properties? In a recent article in SmartAsset, Ashley Kilroy suggested a few different ways for investors to limit their capital gains on real estate properties. The first to employ tax-deferred funds. For instance, you don't have to buy real estate with cash. You can use your IRA or 401(k). By depositing profits in your account, it allows your money to grow tax-free. Second, you can make the property your primary residence. The IRS exempts primary residence sales from capital gains taxes up to $500,000 for married filers and $250,000 for single filers. Third, employing tax-loss harvesting can help you avoid capital gains, assuming you are selling one property for a loss and another for a profit. Fourth, utilizing the 1031 Exchange allows you to use the income from the sale of one property to purchase another property of equal or greater value. In this scenario, you wouldn’t have to pay taxes on prior depreciation deductions. Fifth, the IRS allows rental property owners to deduct an annual depreciation amount from their income. Sixth, you can deduct the costs of managing property through itemized deductions, which lowers your tax burden. Seventh, improving your property boosts your property basis which can shrink your capital gains taxes and increase your property value.
Finsum:A recent article on SmartAsset provided seven different ways investors can limit their capital gains taxes on their real estate properties.
According to data compiled by S&P Global Market Intelligence, ninety-nine U.S.-based publicly traded REITS announced increases to their dividend payments last year, representing about 61.5% of the entire U.S. REIT industry. The self-storage industry reported the highest percentage of dividend hikes relative to the sector's total, with 83.3% announcing dividend increases during 2022. The industrial sector placed second, with 81.8% increasing dividends. The retail industry had the biggest number of REITs that announced dividend hikes last year at 25, 80% of all retail REITs. In addition, close to 70% of U.S. REIT dividend hikes in 2022 surpass pre-COVID payouts. In fact, 68 out of 99 U.S. REITs that announced dividend hikes last year posted higher regular dividend payouts by year-end when compared to dividends in 2019. However, 27 were still paying lower dividends relative to their 2019 dividend payments. This included four hotel REITs that only reinstated their dividends last year after suspending payouts in 2020 and 2021. The remaining 4 had not started trading yet on a major exchange in 2019. In terms of the highest percentage jump in dividends, Service Properties Trust, which focuses on hotels, led all U.S. REITs with year-over-year dividend payout hikes last year. The company raised its quarterly cash dividend to 20 cents per share on Oct. 13, from a 1-cent-per-share paid during the fourth quarter of 2021. However, its current dividend is still below its pre-COVID dividend of 54 cents per share.
Finsum:Over 60% of U.S. REITs announced increases to their dividend payments in 2022, led by the self-storage industry, the industrial sector, and the retail industry.
KKR has become the latest non-traded REIT to limit redemptions. The company revealed in a regulatory filing this week that investors sought to withdraw more than 8% of KKR Real Estate Select Trust’s (KREST) $1.6B in assets during the past three months. KKR said the KREST redemption requests far exceeded its 5% quarterly limit in the past three months. Barron’s reported that the company wrote in its filing that the REIT limited withdrawals to 62% of requests. This follows news last month that the Blackstone Real Estate Income Trust (BREIT) and the Starwood Real Estate Income Trust (SREIT) limited withdrawals after quarterly and monthly redemption limits were breached. Investors have been running for the exits at non-traded REITs, triggering withdrawal limits the REITs use to prevent them from having to make forced sales. The non-traded REITs say they need redemption caps to protect investors because their corporate real estate (CRE) assets typically have limited liquidity. In the regulatory filing, KREST CEO Billy Butcher said “Within KREST, we are balancing providing access to private real estate, which is an illiquid asset class, with the recognition and understanding that regular liquidity is an important feature for KREST shareholders.”
Finsum:KKR becomes the latest non-traded REIT to limit redemption requests to maintain liquidity.
In an interview with Russ Alan Prince in Financial Advisor Magazine, Jeffrey Schwaber, Chief Executive Officer of Bluerock Capital Markets, stated that he believes real estate is well-positioned to outperform in 2023. He noted that while some economic indicators are pointing towards a possible recession this year, “real estate market fundamentals remain very healthy.” He referenced the difference in real estate during the Financial Crisis and now. For instance, the three key factors that negatively impacted real estate during the financial crisis, supply, leverage, and jobs, are all now healthy. Real estate supply as a percentage of total inventory is the lowest it has been in the "trailing 10-year period compared to previous periods and is forecasted to remain at lower levels." The use of leverage since the Financial Crisis has been the lowest of any “real estate/economic recovery” in the last forty years. As for jobs, the unemployment rate was 3.7% as of November, close to the lowest level in 10 years. In terms of where to invest, Schwaber is bullish on the industrial, life science, and single-family residential sectors. The growth of online retail is driving demand for warehouse and distribution centers on the industrial side. Life science real estate offers an attractive opportunity due to significant growth in biotech research, and the significant undersupply of apartments and single-family rentals is fueling the residential housing market.
Finsum:Due to healthy fundamentals, Jeffrey Schwaber, Chief Executive Officer of Bluerock Capital Markets, believes real estate will outperform this year in the industrial, life science, and single-family residential sectors.
The real estate market took a big hit last year as interest rates rose substantially. As debt became more expensive, real estate investors lost purchasing power. For instance, the average 30-year fixed mortgage is more than double where it was in January 2021. This led to sales of luxury homes in the U.S. falling 38.1% from the previous year during the three months ending on November 30th. According to Redfin, it was the largest decline on record. Ari Rastegar, the founder, and CEO of Rastegar Property Company believes that if investors have the liquidity and the ability to execute on investment opportunities, this is a generational buying opportunity. He noted, "This is not 2008 where the banks are jeopardized. The banks have good bills of health, we don't have these subprime loans that are going to blow up. Additionally, we are beginning to see inflation soften. The Consumer Price Index, which peaked in June at 9.1%, has been gradually declining.” He also noted investors don't have to invest in property to take advantage of this opportunity. He told Business Insider that REITs are also on clearance. Rastegar expects the multi-family and industrial property to recover the fastest and recommends looking at the Blackstone Real Estate Income Trust (BREIT) and the Starwood Real Estate Income Trust (SREIT).
Finsum:Due to a record decline in luxury home sales in the U.S., real estate investor Ari Rastegar believes this is a general buying opportunity for investors.